UPI MDR: IIT Bombay report seeks rationalised NPCI merchant fee plan
Why in the news
A report from IIT Bombay, reported on 11 October 2026, said the merchant discount rate (MDR) framework proposed by NPCI for UPI should be rationalised before it is rolled out, or public trust in UPI could suffer.
Key facts
- Report: ‘UPI at a Crossroads: Reintroducing the MDR’, released by IIT Bombay.
- NPCI circular (15 September): proposes MDR on person-to-merchant (P2M) UPI payments above ₹2,000, paid by the merchant, not the customer.
- Person-to-person (P2P) transfers and most small everyday merchant payments stay free.
- Turnover filter: the report suggests charging only merchants with annual turnover of ₹50 crore or more (roughly ₹4 crore a month); these merchants must accept UPI by law and would contribute about 90% of NPCI’s proposed MDR.
- Exemption: no MDR on loan EMI repayments or debt collection, to support financial inclusion.
- Regulator: the Reserve Bank of India should decide UPI MDR under the Payment and Settlement Systems Act, 2007.
- The report calls UPI a public digital infrastructure whose wider economic gains outweigh merchant fee income.
NPCI’s proposed UPI MDR structure
| Segment | Proposed charge (above ₹2,000) | Cap |
|---|---|---|
| General P2M payments | 0.4% | ₹300 (for payments of ₹75,000 or more) |
| Essential services (railways, telecom, fuel, insurance) | Flat ₹5 per transaction | Not applicable |
| Capital markets (mutual funds, stockbroking) | 0.02% | ₹300 |
| P2P transfers | Free | Not applicable |
About MDR
MDR is the fee a merchant pays to the payment ecosystem (banks and other providers) for accepting a digital payment. The report also floated an alternative: a modest charge on all online P2M UPI transactions, similar to a digital payment facilitation fee, to pay all ecosystem providers including banks.
Exam angle
- UPI is run by NPCI; payment systems are regulated by RBI under the PSS Act, 2007.
- Know the 0.4% rate, ₹2,000 threshold and ₹300 cap in the NPCI proposal.
- Note the ₹50 crore turnover threshold suggested by IIT Bombay.